NEWS & TRENDS

CORROSION NEVER SLEEPS
It's a problem that's just eating away at our economy. According to a recent report by NACE International (the National Association of Corrosion Engineers, known also as the Corrosion Society), the total direct cost of corrosion is $137.9 billion per year for the economy's five major industrial sectors: utilities (by far the largest, at $47.9 billion, with electric utilities' cost making up $6.9 billion of that), infrastructure, transportation, production and manufacturing, and government. NACE extrapolates this amount as an impact of $275.7 billion to the U.S. economy, or 3.1 percent of gross domestic product.

The extrapolated costs of corrosion —defined as the deterioration of a material (usually metal) due to a reaction to or interaction with its environment—include not only the replacement of corroded structures, but also the impact on society. "A rusted bridge that collapses, for example, costs truckers and commuters time and money in extra driving," says Ray Poltorak of NACE.

For electric utilities, metal corrosion affects pipelines, transmission towers, distribution stations, and other assets. It can affect larger generation as well. After it found corrosion from boric acid on the Davis-Besse nuclear plant's reactor head, for example, FirstEnergy closed down the plant. An October 2001 EPRI report estimated the total cost of electric facility corrosion at $17.3 billion—a whopping 7.9 percent of the total electricity revenues ($218.4 billion) from consumers. About 22 percent of this EPRI considered avoidable. During the 1970s and 1980s, according to NACE, nuclear and fossil-fuel plants made great efforts to understand and control corrosion. Problems still exist, however—in terms of boiler tube failures, for example. Buried structures like service water piping also suffer from leakage. (See Figure 1.)

NACE's study recommends that the electric utility industry design systems that use corrosion control processes and corrosion-resistant alloys. Effective monitoring and maintenance programs, along with educational and training programs for corrosion control and prevention, could create savings of 25-30 percent, according to NACE.

REGIONAL DIFFERENCES CAN'T BE LMP-ED TOGETHER
The Federal Energy Regulatory Commission's (FERC's) notice of proposed rulemaking on standard market design (SMD NOPR) for the wholesale electricity industry creates big changes—and concerns—for shareholder-owned electric utilities. One concern is the effect on an industry whose differences have been traditionally marked by regional variations in geography, population, fuel mix, and so on. The following is excerpted from testimony delivered by Jeffry E. Sterba, chairman, president, and CEO of PNM Resources on behalf of Edison Electric Institute before the Senate committee on energy and natural resources on September 17. Sterba's other comments focused on equally significant concerns, such as doubts about the rule's transmission investment incentives and its ability to anticipate the role of government- and cooperatively-owned utilities. The deadline for reply comments for FERC's NOPR has been extended to November 15, with comments for some elements due on January 10. (See also "SMD," by Donald Santa, page 12.)

[W]e support the Commission's approach to the standardization of real-time and hourly markets, its adoption of locational marginal pricing [LMP], and its approach to demand response. [But] we do have substantial concerns—

FERC's standardization effort needs greater flexibility to adjust to regional differences. For example, while we support the locational marginal pricing and market design features of the PJM ISO [Pennsylvania-Jersey-Maryland Independent System Operator] that the SMD NOPR adopts, they cannot be quickly or easily transplanted to every region, as the NOPR contemplates. The West, in particular, has a very different resource mix, large reliance on hydropower, and a different transmission configuration.

PJM has been in existence for more than 60 years, and its market system was the first to develop after Order 888 was issued in 1996. While major elements of its market structure may be the ultimate goal toward which other regions of the country should work, the regulatory, technical, and commercial infrastructure to support these markets does not yet exist in many regions. Even participants in the PJM market point out features in the SMD NOPR that should be improved.

One of the SMD proposals that raises some of our greatest concerns is the resource adequacy requirement. Effectively, the SMD requires the independent transmission provider [ITP] to establish minimum reserve margins (a margin of spare electricity capacity in case electricity demand exceeds projections or existing generating capacity unexpectedly fails) and longer-term electricity purchase obligations on the suppliers serving retail customers within its region. While a mechanism is needed to assure that there is adequate capacity to serve customers...important issues need to be addressed... First, the NOPR imposes an unrealistic timeframe of July 2003 on getting this process up and running. The ITP will have enough to do to get LMP and day-ahead and real-time markets in place quickly. Second, the proposal needs greater regional flexibility to allow for thoughtful consideration of regional differences.

Third, since many states have statutory and regulatory planning and resource adequacy requirements (resulting from their enforcement of the "duty to serve"), state cooperation is essential. The SMD NOPR requires the ITP to develop a plan for all states in a region. States will have an advisory role, but no longer would be the key decision-makers on adequacy and the implementation of resource plans. The SMD NOPR also relies upon an untested and yet to be defined market-based approach for investment, which appears to deny a transmission owner the first option to enhance its own facilities. This radical departure from current practice could jeopardize state issuance of needed permits and support for cost recovery. States must be in accord with transmission and resource adequacy plans, or utilities will face resistance on permitting and siting needed infrastructure and on cost recovery.

Transmission planning requires state buy-in because states control siting decisions. While the NOPR correctly recognizes the importance of moving to a regional approach quickly, the simple fact is that, under current law, it will not work without state cooperation. States have been slow to include regional benefits as a criterion for transmission siting approval. Congress can break this impasse by providing FERC with backstop siting authority for transmission in those instances where existing state approval processes for transmission expansion do not work. This approach would give states a reasonable opportunity to site needed transmission facilities, but would permit FERC to authorize such siting if a state does not act or fails to act within a reasonable time. Such federal authority is particularly justified now that FERC asserts federal jurisdiction over all transmission and the emphasis on broad regional electricity markets and regional grid operations— We urge Congress to include federal backstop siting authority in the comprehensive energy legislation now in conference.

WASTEWISE WINNERS
The Environmental Protection Agency's (EPA's) WasteWise program has a primary goal of reducing municipal solid waste that would normally be in an organization's trash—such as corrugated containers, paper, packaging, etc. Companies participate on a voluntary basis, signing on with the program for three years. And it's flexible: Companies can achieve reductions any number of ways, from streamlining processes to avoid waste, recycling it, and so on.

Last October, EPA made awards to seven electric utilities for waste reduction achieved in 2001. Public Service Enterprise Group and Constellation Energy Group were named Partners of the Year, companies judged by EPA to have accomplished and reported the most impressive reductions. Consolidated Edison, Florida Power & Light, PEPCO, Southern California Edison, and Detroit Edison Company were named Program Champions, a second tier of companies making "noteworthy" accomplishments.

Recently EPA has focused more attention on outdated electronic and computer equipment waste. As a result, several companies implemented innovative ways to deal with this waste:

• Recycling. Since joining WasteWise, PEPCO has recycled 50 million pounds of waste, including computers and office paper. PSEG recycled 29 tons of computer equipment in 2000 alone. Constellation reused or recycled more than 19 tons of old computer equipment.
• Donations for reuse. In past years, Constellation donated 29 tons of old or unused computer and electronic equipment through its computer donation program. PSEG donated more than 59 tons of used computer equipment to urban schools as part of a corporate pledge to provide $1 million in electronics. It saved the company $56,950.
• Reselling used equipment. PSEG sold more than six tons of computers and electronic equipment, pocketing $135,805 in the process. The company also has a computer recovery and remanufacturing program that recovered 19 tons of equipment, from monitors to keyboards.

In 2001 EPA encouraged WasteWise participants to reduce construction and demolition debris and to increase the procurement of recycled building products.

INSURANCE SERVICES GAIN POPULARITY
In-home wiring and piping warranties and maintenance services are growing among the residential offerings of electric utilities, according to new research from Chartwell. In its survey of 50 energy companies, in-home wiring service contracts—where the customer pays a monthly fee in exchange for the utility's handling of inside wiring and/or piping repairs—grew 4 percent from 2001 to 2002. The number of utilities considering adding this service grew from 12 percent last year to 14 percent this year. Chartwell attributes this to the slowdown in deregulation and the low success rate of some non-core products offered by the industry.

According to the study, utilities are trying to repeat the success of phone companies' service offering to protect in-home telephone jacks and cabling. Progress Energy, for example, offers a protection plan—for outlets, switches, fuses, breakers, inside wiring, and the outside meter—for $3.95 a month. The insurance covers up to $500 a year in repair costs for these items. The company also offers a plan for repair or replacement of natural gas piping at $2.95 a month. The program, begun in 1999, is Progress Energy's most profitable product: The company had sold it to 50,000 customers by February 2002, and the number had risen to 80,000 as of July.

Additional products and services that utilities are offering in response to market conditions include appliance protection plans or warranties, financing, service and repair, and sales.

© 2008 Edison Electric Institute